Q3 2021 Sysco Corp Earnings Call
[music].
Good morning, and welcome to <unk> fiscal third quarter fiscal 2021 conference call us.
A reminder, today's call is being recorded and we will begin with the opening remarks and introductions I would like to turn the call over to Neil Russell Senior Vice President of Corporate Affairs, and Chief Communications Officer. Please go ahead.
Good morning, everyone and welcome to Cisco's third quarter fiscal 2021 earnings call.
On today's call, we of Kevin Hurricane, our President and Chief Executive Officer, and Air and all our Chief Financial Officer.
Before we begin please note that statements made during this presentation, which state the companys or managements intentions beliefs expectations or predictions of the future are forward looking statements within the meaning of the private Securities Litigation Reform Act and actual results could differ in a material manner.
Additional information about factors that could cause results to differ from those and the forward looking statements is contained and the Companys SEC filings.
This includes but is not limited to risk factors contained in our annual report on form 10-K for the year ended June 27, 2020, and subsequent SEC filings and in the news release issued earlier this morning a.
A copy of these materials can be found and the investors section at Sysco Dot com.
Non-GAAP financial measures are included in our comments today and in our presentation slides. The REIT conciliation of these non-GAAP measures to the corresponding GAAP measures are included at the end of the presentation slides and can also be found in the investors section of our website.
As a reminder, we will be hosting Cisco's investor day on May 20th.
For today's call Kevin will start by discussing Cisco's recent performance and will then provide an update on the business environment recovery.
He will then turn it over to Aaron who will discuss sysco third quarter financial results.
And to ensure that we have sufficient time to answer all questions, we'd like to ask each participant to limit the time today to one question and one follow up.
At this time I would like to turn the call over to our President and Chief Executive Officer, Kevin Hurricane.
Thank you Neil.
Morning, everyone and thank you for joining our call today.
Hope that you and your families are staying safe and healthy.
I would summarize our third quarter performance with four important points.
And our industry's COVID-19 business recovery is here and the pace of the recovery is accelerating especially in our domestic us business.
Second we are making excellent progress and our business transformation to better serve our customers and differentiate from our competition.
Third we are winning market share at the national and local customer level.
Fourth our financial results for the third quarter were strong and life of the market conditions, mostly due to improved sales and disciplined expense management.
As we have previously communicated we can see and our performance data that once restrictions placed upon our customers are eased our business results quickly improve.
We see tremendous pent up demand and the food away from home sector.
Our data confirms that consumers are eager to eat at restaurants assumed as restrictions are reduced.
Strong sales results and long wait times are common and restaurants operating within geographies that had limited restrictions.
The third quarter can be accurately described as difficult at the beginning and robust at the end.
Our January performance was negatively impacted by meaningfully tight restrictions on our customers during the winter COVID-19 Lockdown and.
In February of substantial winter storm adversely affected our performance and our strongest domestic markets.
In contrast, the March sales period exceeded our expectations and bodes well as the strong indicator for the business recovery within our sector.
As a result, we exited the third quarter with promising sales trends.
The improvement is most notable and the southern third of the United States were reduced restrictions and warmer weather are generating strong performance results.
The results and reopened markets net and then late in the quarter surpassed 2019 levels and the important local independent restaurants sector.
These results for a positive harbinger of things to come as the northern regions begin to benefit from easing restrictions that are most of the lease still in place today.
The independent restaurant sector exceeding 2019 sales levels and reopened markets is positive outcome and a rebound of timing that is faster than the industry had predicted.
And Europe, however, restrictions remain firmly in place.
Our European countries are experiencing restrictions even stronger than those experienced in the U S and April of 2020.
Our sales results and Europe reflect those tight restrictions and remained down meaningfully compared to 2019 levels.
We remain confident and our ability to succeed and the European markets and expect improvement to begin and the latter half of our fiscal fourth quarter.
In addition to the softer European performance, our business and the travel.
Hospitality and foodservice management sectors remain down.
Our business penetration in Europe, and and Foodservice management pre COVID-19 is creating a lingering delayed and the full recovery of our business results and comparison to select other distributors.
We are confident that these sectors will recover but their recovery will be at a slower pace than our core restaurant sector.
As a result, when these geographies and segments more fully recover it will add strength and sustainability of sysco as recovery, giving us fuel to grow in quarters and years to come.
All told we delivered a sales decrease of 13, 7% for the quarter.
While sales were down compared to 2020, our results reflect an improvement over our second quarter decline of 23%.
Which is another clear signal that the industry is recovering.
The most compelling outcome of the fiscal third quarter is debt the local independent restaurant sector was performing well above our expectations as we exited the quarter with many restaurant partners running sales increases compared to 2019.
The third quarter of fiscal results were down compared to the prior year I am pleased to report that we once again delivered a profitable quarter delivering.
Delivering $437 million of adjusted EBITDA.
Cisco is doing more than anyone in the foodservice distribution industry to ensure the success of restaurants and prepare for the return of foodservice demand.
Which can be seen and our overall market share growth throughout the quarter.
Sysco gained overall market share versus the rest of the industry, reflecting the progress of our recent investments.
Our sales teams are actively engaged with new customers and helping existing customers maximize their business. During this recovery period.
We continued to win business at the national and contract sales level.
We have now posted over one 8 billion of net new wins since the start of the pandemic with another strong quarter of new contracts signed.
I have said on prior calls the contracts. We are writing are at historic profit margins were.
We are winning the new business due to our supply chain and our service capabilities.
In addition to the national contract sales wins, we on boarded more new local customers than ever before during the third quarter.
Fueled by our restaurants rising program and our new sales associate compensation model.
A recent industry report confirmed that the number of local restaurants was down approximately 10% to 2019 levels due to permanent closures.
The 10% closure is better than most experts had predicted for the industry.
After posting the strongest quarter ever of new local customer wins at Sysco, you can see on slide six.
That we are now serving 10% more local customers and we did and fiscal 2019.
The fact that we have increased the number of customers that we serve during this pandemic bodes well for our future top line growth.
When the industry is fully recovered.
Our increased customer count positions us well to take market share as the business returns to the food away from home sector, and our fiscal 2022 and beyond.
As we discussed on our last call, we began making several strategic investments and preparation for the business recovery.
These investments increased throughout the fiscal third quarter, and we will continue and our fourth quarter.
We have focused our investments on our customers our people our inventory our technology and our community.
These investments have helped position Sysco ahead of the curve for the return of foodservice demand.
Our investments and our customers, including our restaurants, rising and campaign make it easier for restaurants to succeed and strengthen their business for the future.
During this uncertain business environment, we have made it easier for our customers to do business with sysco by waiving delivery minimums on regularly scheduled for delivery days.
We are making investments and our people, including increasing our efforts to proactively staff and advance of the business recovery curve to ensure we of the right number of people and the right locations at the right time to be able to ship on time and in full to our customers.
At Sysco, we expect to hire over 6000 associates and the second half of our fiscal year.
We have of full court press on hiring warehouse selectors and drivers.
Throughout our industry drivers are indeed, and short supply and hiring this challenge.
We're pulling every lever to ensure we meet our hiring targets. While this hiring investment will increase our operational expenses and the short term over the long term. It will help ensure that sysco was able to maximize our share gains during the business recovery.
We are also making investments and inventory to properly position, our warehouses to support customer demand.
Currently sysco has inventory on hand, and on order and a combined amount that is greater than our inventory position before the COVID-19 crisis began.
Our ability to ship product on time and in full during the upcoming period of volume recovery is a core element of what makes sysco the strongest broad line distributor and the industry.
Due to our strong balance sheet, we are uniquely positioned to be able to make investments and inventory to ensure we can accelerate growth faster than the overall recovery.
We are seeing pressure and constraints and the supply chain of select suppliers struggled with meeting increased demand levels. This is known as the supply chain bullwhip effect as market conditions rebound.
At Sysco, we have seen this constraint coming and have been partnering with our top suppliers for more than 90 days to preposition power Corp.
The houses we view this as an opportunity to grow our business and take additional market share.
We are continuing our strategic investments and our technology to improve the customer experience our technology.
The <unk> platform as being meaningfully improved so that we can better serve our customers.
And we're making it easier for our customers to order products through our Sysco shop platform and we are implementing a best in class pricing software, we will discuss both of these topics in detail at our Investor day.
Lastly, our corporate social responsibility initiatives in 2025 goals are progressing well on.
And our industry, leading the CSR efforts are setting the standard for care and progress across three pillars of people product and planet.
We are making great strides on this very important work as evidenced by our recent announcement with cargo.
Which is a critical partnership along with the National Fish and Wildlife Foundation to improve sustainable grazing practices across 1 million acres of grassland.
This effort helped to improve soil health promote biodiversity and increased carbon storage and safeguard the livelihoods of ranchers and the communities and which we serve.
And this progress is also good for our business as our customers can buy sysco product with confidence knowing the environmental and social benefits, we bring to their table.
At Sysco, we are working to maximize our opportunity to recover faster than the industry.
We have an opportunity to gain market share given our financial strength and our compelling business transformation.
We are prepared to do more than any other foodservice distributor and the industry to ensure the success of our customers and our customer success will generate business and growth for sysco.
I would like to invite everyone to our may 20th Investor day at that important meeting we will provide you with the details of our strategic growth plan and all of that plan will deliver compelling financial results.
Please plan to join us virtually on May 20, and.
And the will provide you with the details and logistics.
I wanted to give a heartfelt thanks to all of our sysco associated to continue to help our customers grow and succeed in this challenging environment.
I am proud of their dedication during this dynamic operating environment.
I'll now turn the call over to air and all who will discuss our third quarter results along with additional financial details Erin over to you.
Thank you, Kevin and good morning, and improving sales trends.
A profitable quarter and strong cash flow.
Those are our key headlines.
Our fiscal third quarter presented us with the beginning of of restaurant recovery and the United States countered by continued business disruption and the international and Foodservice management parts of our portfolio.
As a result, we balanced five financial priorities tactical investments in inventory team and equipment to get ahead of the business recovery strategic investments and capabilities and technologies to advance the transformation.
Careful cost control to mitigate the impact of the COVID-19 environment on our bottom line purposeful reduction of our indebtedness and of course continued return of capital to shareholders through our dividend payments totaling $689 million. So far this fiscal year.
As Kevin called out we were delighted to see the improving sales trends and the progress on profit and I will speak more on the income statement shortly I.
I would like to start today with an emphasis on the strong position we are in and as we move up the recovery curve and how that strength is impacting our view of the cash flow and the balance sheet.
We'll call it the end of the second quarter, we had $5 8 billion of cash.
During the third quarter, we generated positive cash from operations of $543 million offset by $83 million of net capital investment, leaving us with incremental positive free cash flow for the third quarter of $460 million.
Working capital was the source of cash force in the quarter, even though we invested heavily and inventory and as Kevin pointed out we ended the third quarter with inventory on hand, and inventory on order and exceeding pre COVID-19 levels.
And we benefited from a significant increase and payables at quarter end.
And we saw rising normal course receivables balances as our customers started purchasing more but.
But we also made excellent progress on obtaining timely payment from our customers on both the pre COVID-19 and post COVID-19 bills.
For the nine months period, even in the face of COVID-19, Sysco generated an impressive $1 2 billion and free cash flow.
This strong cash flow was approximately 300 million better than we had forecast earlier this year driven by the combination of higher sales and profit working capital benefit and lower Capex and forecast back in the first quarter.
All and we ended the third quarter with $4 9 billion of cash on hand, we.
We expect that the fourth quarter will bring continued progress on the EBITDA line. It is also expected to bring in and investments and working capital as we continue to invest and inventory and as the payables, which provided us with benefit and the third quarter come due and the fourth quarter. As a result, we are forecasting flattish free cash flow for the fourth quarter, leaving us with free.
Cash for the year of approximately one 1% to $1 2 billion.
Given our balance sheet, our strong cash generation and our optimism for the business recovery.
Early in the third quarter, we announced that we were continuing the process of reducing our debt levels.
We paid down $1 $1 billion on that date funded by cash on hand, and you will see that change and leverage reflected and our third quarter financials.
What you will not yet seen the financials is that subsequent to the end of our third quarter, we repaid an additional 200 million pounds Sterling on the outstanding amount of the UK commercial paper program and we will later this week pay off the remaining 100 million pounds Sterling balance on that program, which will bring our debt levels down.
And by approximately $1 $5 billion since the start of the third quarter and down by $2 $3 billion since the start of this fiscal year.
Stay tuned for a discussion of our capital allocation strategy at Investor Day.
Okay, and let's turn on the income statement, given the interest and the shape of the COVID-19 recovery curve for the next couple of quarters, we will disclose sales comparisons against both fiscal 2019 and fiscal 2020.
Third quarter sales were $11 8 billion a decrease of 13, 7% from the same quarter and fiscal 2020, and the 19, 3% decrease from the same quarter and fiscal 2019.
And with the important qualification that and the last two weeks of the quarter, we began to lap the onset of of the COVID-19 crisis.
Indeed, looking at the monthly progression measured against fiscal 19, and our sales were down 23%, 23% and 14% and January February and March reflecting the impact of COVID-19 across the quarter.
February would have been better but for the impact of the winter storm and the us during the last week of February.
We are also disclosing today on a onetime basis that our April sales were approximately $4 4 billion up 102, 1% from prior year and improving to only down eight 8% for fiscal 2019.
Our United States sales and the U S. Foodservice segment were down five 3% versus fiscal 2019, and Sigma was up 12% versus fiscal 2019, reflecting the increase and restaurant traffic and orders as the Lockdowns eased in the us.
We will continue to benefit as the us reopening advances.
In contrast, Europe, Canada, and Latin America, regressed and the third quarter as a result of strict lockdowns that are now expected to continue and some cases until the end of May and as a result of slower progress and vaccination.
The slower international recovery will continue to impact our fourth quarter results and may carry into the early quarters of fiscal 2022, depending on the vaccination progress by country. However.
However, we see good news and the recent reopening taking place and the United Kingdom.
Here are a couple of additional metrics for the quarter local case volume within the U S. Broadline operations decreased nine 7%.
While total case volume within the U S Broadline operations decreased 14, 1%.
Foreign exchange rates had a positive impact of 77 basis points on our sales results.
As we move down the P&L gross profit was $2 $1 billion and the third quarter, decreasing 17, 2% versus same quarter and fiscal 2020.
And most of the decline in gross profit was driven by lower volumes due to COVID-19.
However, we did see modest gross margin dilution and at the enterprise level of roughly 77 basis points versus the same period in fiscal 2020 as our rate came in just the touch shy of 18% the.
Primary reason for the gross margin dilution as business mix, our sales and are generally higher margin European business were down so lower gross margin at the enterprise along the same lines, our sales and a lower margin SYGMA business were up so lower gross margin at the enterprise.
We also saw modest margin dilution on each of the business segments with varying causes from product mix shifts the timing by market of the interplay between passing along inflation and implementing our transformation initiatives.
Adjusted operating expense decreased 14, 7% to just under $1 9 billion and we saw a modest improvement of operating expense leverage.
Even with lower sales to prior year or.
And our expense profile reflected the counterweights of good cost out achievement balanced against our investments for the recovery curve and our investments against the transformation agenda.
And as part of this we targeted and achieved increased significant cost savings.
We are on track to surpass our fiscal 2021 goal of $350 million of cost savings.
We expect to drive continued cost savings opportunities to help fuel our future growth agenda of topic I will discuss more at Investor day and two weeks.
And finally at the enterprise level, adjusted operating income decreased to 32% to $256 million.
For the third quarter, our non-GAAP tax rate of 14, 3% was favorably driven by the impact of stock option exercises.
Adjusted earnings per share decreased 51, 1% to <unk> 22 for the quarter.
Let's say a few words on our third quarter results by business segment, starting with Us foodservice operations.
Sales were $8 billion, which was a decrease of 12, 8% versus the prior year period.
And the rapidly evolving environment the business again acquired a record number of new customers as our sales teams hit the streets and we deploy digital tools.
We also saw growth and our national accounts customer base.
This business our biggest business is moving up the COVID-19 recovery curve rapidly.
Within the business Sysco brand sales for the third quarter decreased to 116 basis points to 37, 3% of total U S cases, driven by customer and product mix shift.
With respect of local use case, the sysco brand sales decreased 234 basis points to 44, 5%, which was driven by product mix shift into pre packaged and takeaway ready products.
Regaining sysco brand sales levels and the healthy margins that come with them will be of focus for fiscal 'twenty two and beyond.
Gross profit for US foodservice decreased 13, 7% to $1 6 billion for the quarter. The segment's adjusted operating expenses decreased 16, 1% to $1 1 billion.
And adjusted operating income decreased eight 3% of $525 million.
Product cost inflation was three 5% versus prior year, driven by deflationary our categories and fiscal 2020.
Moving to the SYGMA segment for the third consecutive quarter of sales increased during the third fiscal quarter for $1 6 billion, a 15, 9% increase over fiscal 2020, and the 3% increase of our fiscal 2019, driven by the success of National and regional quick service restaurants servicing drive through traffic.
While we are pleased with the team's efforts during COVID-19 Sigma is our lowest margin segment and our team is carefully calibrating our efforts and that business.
Particularly as it relates to negotiating agreements with customers.
As a result, starting during our fiscal fourth quarter, and we will be taking the opportunity to transition away from a large existing regional customer the.
The financials of that relationship do not meet our preferred profile and we will be focusing on freeing up capacity for more profitable customers.
On forward, we will continue to be diligent and our contract review and approval process across the enterprise.
Gross profit increased 12, 3% to $133 million for the quarter for gross margin was down 27 basis points compared to the prior year.
The adjusted operating expenses increased 11, 1% to $121 million and adjusted operating income increased 24, 1% to $13 million all of that Sigma.
Moving to the international segment as I mentioned earlier, our European and Canadian and Latin American businesses continued to be impacted by COVID-19 lockdowns.
The International Foodservice operations segment saw sales of $1 $7 billion of.
<unk> of 31, 3%, while gross profit decreased 35, 1% and gross margin decreased 110 basis points.
The gross margin decline was the result of country mix customer mix and product mix.
For the International segment adjusted operating expenses decreased 15, 8%, leading to an adjusted operating loss of $92 million.
We are confident that international will be a significant recovery opportunity for our company and fiscal 2022.
Our other segment, which includes our guest worldwide business remains and the COVID-19 recovery starting blocks as hospitality occupancy rates remained low compared to prior year levels.
While still in turnaround mode. The business improved its underlying profitability during the third quarter. Additionally, our guest worldwide business signed the substantial new customer contract during the quarter that will be very beneficial for the segment as the travel and hospitality sectors recover.
That concludes my prepared remarks on the third quarter.
We are not providing further guidance for the fourth quarter other than to observe that we continue to monitor monitor our operating environment carefully.
While operational challenges remain for many of our customers, we are seeing excellent demand and our core business and the key markets and the center and the south.
And we are seeing green shoots on the coasts as markets reopen.
Let's be clear the upswing has begun and we expect continued progress across the largest parts of our portfolio and the fourth fiscal quarter.
And our team remains resolutely focused on driving our businesses aggressively managing the business recovery and building customer centric capabilities to accelerate long term growth.
As we did and the third quarter, we will continue to deploy our balance sheet to invest and inventory technology and our people to stay ahead of the recovery curve, while also reducing our indebtedness.
During our Investor day in two weeks, Kevin and the executive leadership team will offer more detailed perspective on the business on our growth plans for fiscal 2022 and beyond and provide further specifics on our transformation efforts.
We will comment on our post COVID-19 capital allocation strategy, including the breadth and depth of our organic and inorganic investment plans our plans for further debt reduction and how we're thinking about continued shareholder returns.
We look forward to seeing you participate in that virtual event. Thank.
Thank you for your attention operator, we are now ready for questions.
At this time I would like to remind everyone and audit to ask the question. Please.
The line.
First question comes from Alex Slagle with Jefferies.
Thanks, Good morning.
Question on that debt local case growth and the new customer wins and continues to be remarkable wondered if you could dive a little deeper our behind the drivers for US what you think the biggest driver was and then specifically if you could dimensionalize. How you think the change in delivery minimums impacted the top line and margins during the <unk>.
Quarter, and that's a meaningful driver you want to keep around or something.
Temporary that you see shifting back shortly.
Good morning, Alex. Thank you for the question just on the new customer prospecting, we're very proud of those results and as I said in my prepared remarks largest single quarter ever and the history of the company from a new customer wins perspective for those that are keeping score I said the same thing in Q2, we actually just up the performance net debt.
We posted in Q2, so we've got two consecutive quarters of record levels of new customer prospecting the why.
He is pretty straightforward, we made it a big priority for our sales force. We're a company that manages what we expect and we manage what we measure and we have impacts on the things that we focus upon the second is as I have spoken pretty openly about we removed of barrier and our prior compensation program and had gotten the way of prospecting. So we <unk>.
Our sales consultant compensation late last summer and took a quarter or two for that to really kick in and get the change management going and get to a level of understanding of the.
Key components of that program and we've made it now financially beneficial for our sales consultants to prospect because it's good for us and it's now good for them equally so.
Two basic reasonably simple premises, which is and we've made it a priority for tracking for measuring it and we have goals specifically by the sales consultant on new customer prospecting and the financial compensation rewards them for that activity and it obviously rewards our company as we are able to win new business profitably and grow over overtime and as I said.
And my prepared remarks as well.
Less visible on our total top line because in many cities in the country. There are still significant restaurant restrictions, but those new customer wins are going to pay dividend and fruit for us as this recovery that we are now a part of begins to further accelerate and our Q4 and then into fiscal 2022. So we're really pleased with it.
Second part of the question was about restaurants rising do we expect it to continue and wasn't a big driver of the wins I would say, yes that would be my point number three which would be restaurants rising was a barrier that previously got on the way for a new customer coming over to Sysco, we had pretty strict and rigorous delivery days and minimums and we've.
Eliminated debt barrier will that stay and we'll talk more about that on our May 20, Investor day, I'm not ready to this morning to make an announcement in that regard.
Alex It's Eric Good morning, I'd add one thing for that as well and while we don't spend as much time on these calls talking about the other segments and our business. There is further goodness out there, which is whether it's in Europe and the UK in particular that has games.
Large foodservice management contracts during the crisis, but the sales are not yet on display or indeed, and the guest worldwide business, where again the gained the large customer oftentimes getting and the door is the hardest part of the good news is our teams have kicked open the doors and as the recovery happens, we expect that to bring good news story.
The results as well.
Helpful. Thank you.
Thank you Alex.
Your next question is from.
And.
Edward Kelly with Wells Fargo.
Good morning, guys.
Thanks for all of the color by the way.
And I wanted to ask you Ken.
Kevin about post COVID-19.
Customer mix.
And overall volume just kind of curious how do you think you've won business on the independent sides of one business on the contract side, how do we think about one of the world normalizes, how much higher your case volume full day.
And then 2019 and.
And what does the mix and up looking like is it possible with the independent wins and <unk> seen that Youre independent mix could actually be higher is that too much to ask for just kind of curious as to as to how youre thinking about all of that.
Ed. Thank you for the question I would say for fiscal 'twenty, two I would expect for our independent mix to be higher for a couple of factors one the number of wins that we're talking about too and we did say this and our prepared remarks foodservice management hospitality travel are down.
And still pretty significantly and have a slower recovery curve. So I think those two factors put side by side would indicate that the balance of our total would be shifting.
One counterpoint to that is one of our strongest sectors gives us our sigma sector were running double digit increases the prior year and Sigma and that is margin rate dilutive because of the fact that Sigma is our least profitable right. The business. So Aaron can talk more about that on may 20th. He is prepared to talk about where we're headed the company.
And so those are comments for fiscal 2022, if I look over the longer term our expectation is each of the sectors that we play in will recover to pre COVID-19 levels, they're each going to recover on a different curve, which we've tracked and we've mapped we're using the technomic data to predict when that will occur and what we said.
And from a point of optimism perspective is each of those businesses is actually ahead of schedule versus what technomic had predicted which is on <unk>.
Positive harbinger of what's to come and fiscal 2022 and beyond we expect to take share and each of those sectors. That's my best way of putting a kind of.
Period at the end of the sentence, we have growth strategies in place for how to win and each of those sectors. So us each sector recovers and we take share if youre asking me two years from now three years from now what we see meaningfully different balance of the sale of by customer I Wouldnt suggest that I would say each of the sectors will.
Grow and it's hard to predict three years from now what the precise balance of sales will be but hopefully post investor day, there'll be more clarity to that.
And then just a quick follow up on that you did talk about investment and the recovery and about some pressure on drivers and warehouse workers.
Can you just talk a little bit about that house will that impact the P&L and does it have any impact on your ability to drive higher post carbon EBIT EBIT margins.
And when the dust settles.
It's a great question in regards to the labor availability challenges that are being based across the industry frankly across all industries, you've read obviously about the restaurants themselves and how much they're struggling with filling their jobs and the drivers in particular are in short supply nationwide and frankly and in multiple countries within which we operate.
Here's one meaningful point of difference between the sysco in let's call. It the restaurant our jobs are excellent paying jobs, we do not have a wage challenge we do not have a minimum wage challenge even if the niche and went through a $15 minimum we do not have pressure on that regard our driver jobs are excellent paying jobs straw.
The benefits they are attractive positions, our issue and what I spoke to on the call today is creating awareness to those jobs. So we've had to do things and this quarter and the quarter were in Q3 and Q4 to increase advertising to create awareness we've had to do some things to create sign on bonuses retention bonuses referral bonuses. So.
And the quote the incremental expenses that I was referring to where more of that ilk and structural permanent increases to the wage which would dilute margin. So I view. This is actually a little bit more of a transitory activity, where we're needing to hire over 6000 people and our second half of our fiscal year and there are select pockets within the country that are really.
Tight and we're doing some things to create awareness of our job.
Were confident and our ability to improve our profit ratio and the future. We have of cost takeout program that is substantial that will help offset any pressures, we would see and wage. We've said previously that we have taken $350 million of permanent structural cost out of our business and that's also something that.
And we'll talk about and more detail on may 20th.
Thank you.
Thank you Ed.
Operator, we're ready for our next question.
Your next question is from the line.
Your next question is from the line of Kelly Bania of BMO.
BMO capital.
Hi, good morning, Thanks for taking our questions.
If you picked out and you can go back to the to the $350 million and structural cost savings I think there was the mention of.
Bill maybe setup could surpass that target and this just curious if you could talk about where you're finding.
The incremental savings and where youre feeling better about that if there is any potential to incur.
The increase that as you move forward.
Yes.
Great question. Thank you for it and good morning.
We are quite excited about our progress against our cost savings effort just to go back for a second on what we had targeted for fiscal 'twenty, one was $350 million of cost out through a combination of.
And the savings and Cogs as well as an operating expense.
We're ahead of our forecast in that respect and we certainly expect to.
Meet or beat of our 350 target for fiscal 'twenty one.
I am, particularly excited this quarter because of the savings are more visible than they have been.
And.
Previous quarters.
And.
And at the sake of distracting us had been I thought we might do some simple math on the call today, just so I could illustrate the point of how we can see the savings is having an impact on our P&L.
And kind of prove the point that the real they are there and in particular as sales go back up and we have the opportunity to.
Haven't cleaner view it will be more obvious to everyone that the.
We're out there so bear with me a second I'm going on actually walk you through some simple math.
And it starts like this to go back a year to Q3.
In fiscal 'twenty, our adjusted Opex was 218 7 billion sorry for the decimal points, there, but given the levels we're talking about.
This quarter and on the comparison period of our sales were down 13, 7%.
So if for the sake of argument, we assumed that our costs were fully variable or not but if we did opex should have been down about $300 million.
But joel guided to you in the past that our cost structure is a third fixed and two thirds variable.
So the variable cost would have been just under $200 million of that $300 million.
And we should have suffered from stranded fixed costs of a $100 million.
Absent the cost savings actions that would have put us at the $1 billion nine eight alright, adjusted just to continue the simple math as we push on had everyone hopefully still with me.
Our adjusted Opex for this quarter was <unk> was $1 86 seven <unk>.
Down $320 million, meaning not only do we reduce the variable cost consistent with sales, but we also took out of $120 million of fixed costs, which is the whole point of our cost out efforts right being able to grow quarter over quarter before investments right B.
And be able to take the fixed costs out of the structure and the nice thing about this quarter as sales or Don we're able to show that now I should point out of couple of other things as well. The first is is that we did get we did get call. It $40 million of good guys that are one time or other benefits that werent part of the cost out structure.
What you can't see us those good guys offset 40% to $50 million of purposeful investments, we made against the recovery and against the transformation and opex for the quarter as well.
We've always committed debt, we're going to invest against the business, we're going to use some of the savings to advance our agenda. That's what we've done this quarter just gives us a good example of how we can show of the math showing that it works out on Investor Day, I will have more to say about cost out and it will talk about.
And really Kelly to the point of your part of your question of where is the cost out coming from how its coming from the way, we've restructured and regionalized our business, how it's coming from a culture of frugality that Kevin is leading how its coming from prioritizing our investments and insisting on business cases, as we push ahead, where the core.
Discipline that you would want and how it is helping us to offset some of the trends of our trends are headlines around <unk>.
Employee costs for inflation et cetera, as we carry forward. So thanks for the question of long answer, but I hope that's helpful.
Okay.
Very very helpful. I appreciate that debt.
The detailed answer.
And just also wanted to just.
Asked if I can just about food inflation, and maybe what youre seeing so far in Q.
The fourth quarter. If you are seeing this cost of accelerated just how you feel about passing those on and I think you have some new tools and software to me.
Manage that but maybe just update on on what Youre seeing there.
Kelly. Thank you for the inflation question, it's definitely accelerating but I would say that's more of a Q4 fiscal happening than it was at Q3 happening. We all read the paper every day, we're seeing what's happening not just in this industry, but in every industry certainly the economy is becoming more inflationary basic and economic.
Our and play here, we are significantly increasing demand. Unfortunately simultaneous with some supply challenges that are pretty well known out there and the food industry. So what is the impact of that we are seeing sales, increasing we will most likely and our Q4 see us slightly dilutive impact on margin rate and GP dollars. However.
Hopefully would be and a growth mode, but to be determined on our ability to pass through this inflation to our customers. So here's what we're seeing consumers people, who are actually going to the restaurants themselves are showing a willingness to pay a higher ticket I think you've heard other restaurant people that you personally cover talk about that.
We are seeing restaurant partners being willing to increase their menu prices and we're working with them Thats and part of what Sysco does we consult with them. We teach them, we educate them on the impact of the inflation on the Cogs that we are all experiencing and we're providing suggestions on alternative product to offset the cost and also we are providing suggestions on where some price increases on.
The menu could take place and portable important flow notable point food away from home right. Now is a very competitive on a price basis versus retail grocery and I. Thank you. All know of at this time last year retail grocers did a good job managing their business and the essentially eliminated promos because they didnt need them anymore and they are running double digit comps.
So price is at the retail grocery have gone up on a year over year basis prices actually had gone down during the COVID-19 crisis within the menu of the restaurant and.
And I think we're seeing some kind of re establishment of cost I heard someone on squawk. This morning actually saved us term re inflation, which is last year was deflationary and we're actually now kind of getting back to where we would have been if 2020 wouldn't have been what it was so let's call that of catch up last point for me and then I'll talk about what we're doing with our customers.
Do you expect for the supply to demand equation to normalize over time, meaning suppliers will be smart and they'll ramp up demand and then therefore some of this inflation pressure will decrease I just don't of how long it's going to take.
What we're doing is we're closely closely managing this I think you know we of many contracts that had contracted it's the percent of Cogs or it's a fixed spread to Cogs.
And also we have many contracts local independent customers to be specific where we do not have contracts and Kelly, that's where today, it's mostly manual done by our sales teams and we're providing guidance on how to manage it but its manual to your point. The periscope system that we are deploying will help us gratefully on these types of things we will be much more.
The Antefix and specific on how we call specific choices by category on what we want to pass through and what we don't want to pass through and then we can guarantee it is showing up in sysco shop in front of the customer. Unfortunately as you know we're still in the middle of that rollout and in fact, one out of nowhere in the beginning part of that rollout since last quarter, we've expanded and Paris.
Scope two five additional regions and.
And the second half of this calendar year going to complete that rollout. So yes, periscope will be a tremendous benefit to these types of environmental conditions and the future. It's exactly why we need the tool. Good question. Thank you for asking.
Thank you.
Yes.
The next question comes from the line of John Heimbach Hall with Guggenheim.
And Kevin one thing the COVID-19 did right is drive existing account and vendor consolidation and.
So what are you seeing and reopened markets is that sticking.
Our restaurants going back to dealing with more vendors how are they behaving and what what are you what are you seeing with.
So of your existing account share gains.
Yes, John Thank you for the question probably is still a little bit too soon to tell there was definitely distributor consolidation that took place during the COVID-19.
And my goal for our company will be the I'll keep it and I'm sure that will be the goal of of all of those that were winners during this market share.
And that we have experienced I think what you are asking and I will just say of pretty bluntly. The biggest players in this space have been net winners since the beginning of this pandemic and I have been asked point blank for the question is Kevin Youre, saying and two other big companies are saying you are winning share how can that be true how that can be true us. If you have the market share of those three companies together combined were less than half of the.
Total in the marketplace. So I think the thesis remains accurate that the strongest and biggest players are succeeding during this environment and we have no intentions of giving back the market share that we've gained and things that we're doing to retain those customers. The sysco shop tool is becoming much easier to use suggested orders.
Easy reorder button on.
Other customers like you are buying the following things work, we're going to talk about on Investor day on something we're calling personalization to improve the relevance of the offers that we provide our customers. They are specifically targeted towards increasing penetration with the customers that we currently serve there's gold there and then hills as we'd like to see.
And so Ed the biggest players have been successful us being the largest and this space and we believe we can even further leverage our scale of our purchasing economies are supply chain economies and as we get better and smarter on the.
Promotional offers we provide to our customers.
We intend to increase share of wallet and increase customer retention.
And secondly, do you have a good sense of the 10% increase and independent customers since 19.
Where do they fall in terms of your average share with the sort.
And sort of a ramp up process of they are below average or have they come on.
The average or above average in terms of your share.
Yes.
That does and I apologize John I know, you are and where you live and Staten Island My apologies for the name of flip in the.
Spending on new customer wins that we have are you, saying what is our share of them and how does it compare to a normal book of business.
And the 10% and picked up since 19, how are they behaving right is there a ramp up process, where theyre below average compared to more tenured accounts for <unk>.
Because of COVID-19, if they come on and are actually your share was higher with those.
Yes, John.
And thank you for the question, Yes, it's what you said and the first half and they come on the smaller we win X number of lines and cases, and then we earn the right over time to increase and so thats industry historical fact pattern remains to be true and.
Again, we're plowing through that because we know we can in fact succeed in selling around the room. So if we win center of plate and we can sell around the plate. If we win with produce we can then introduce center of plate and we're confident we can do that so the profit per case. The spine. It's just the number of cases per unique stop are tend to be.
The lower for a new customer win as you indicated.
Okay. Thank you.
Thank you Jonathan.
Your next question comes from the line of John Glass with Morgan Stanley.
Hi, Thanks, Good morning, I wanted to follow up on the independent comment Kevin just a couple of ways. One is you talked about a strategy of going after new cuisine or individual cuisine types of how much evidence of was that in this quarter and these and these new wins or was this just broader because of the sales force has been re fashion and.
And similarly on your pricing tool that you've talked about I know youre not rolled out yet but is.
Is the net result of that debt youre going to be sharper on pricing or is it not that and it's simply a pricing transparency and that just gets you more wins because of that.
Yes, John Great questions loved the both of this the the first one which is the cuisine based selling and what percent of our wins are coming from that I would say the majority of our new customer prospecting activity is more a because we made it a priority b the compensation change.
<unk> would be relevant offers to be provided to those customers and I would put our cuisine based selling into the third bucket I view, the cuisine based selling upside opportunity to be just as much for existing customers.
Sure.
Thousands and thousands of Mexican restaurant, and customers Asian customers Italian customers and what we're doing with our cuisine based selling program is improving the category strategy to serve those customers the marketing and merchandising promotional strategies to serve those customers and then serving them up and team them up and a very clear coherent for cogent.
The adjusted manner, both in Sysco shop, and through our sales force, it's kind of a best of both digital and human capital.
Bill in the early innings of network to be clear and.
And we're going to talk about debt quite extensively on May 20, and what that program looks like how we will roll that program out and we look forward to being able to share that with you on that day.
Okay, and I'm sorry, the second part of that was just on the on the pricing you sharpen and is it of sharpening of pricing given the new pricing tool or is that just the customer acquisition vehicle to create that transparency that maybe was the block.
Yes, great and as it relates to our strategy we've been reasonably clear on this one which is the primary point of the our pricing software is to be right on price at the item customer level to be right on price, which means for <unk> known value items, we need to be sharper on price, we actually need to lower our prices for those items, which will result.
<unk> sales increases at a slightly lower margin rate, which flows through to GP dollars being put into the bank simultaneously, we have the opportunity on what we call the tail over our assortment of inelastic skus to nominally increase price to be able to offset the investments, we're making on the caveat and so how we've described it in aggregate is.
For the most part margin rate will be a flat constant and this is a sales gain growth opportunity for us as we are right on price shaper on known value items, and we know that the number one reason why a customer leaves the distributor is because of trust and pricing and fairness and pricing and we need to tackle that head on.
Got it okay. Thank you.
Thank you.
Your next question comes from the line of Jeffrey Bernstein.
Great. Thank you very much actually just following up kind of for.
Bringing your last discussion together in terms of <unk>.
Profitability.
And we've heard a number of restaurants and some of your distribution peers talking about doing more with less.
And when the sales do recover the prior full strength.
Reasonably leading to upside to I guess prior operating or EBITDA margin whenever you focus on but I'm wondering how you specifically think about that especially as you talk about you know on the near term picking up more Sigma chain business, which is lower margin.
And that the pricing tools, which youre, raising some maybe lower and others and I'm. Just wondering how you think about your operating or EBITDA margin and coming quarters and years post COVID-19 when sales, presumably do get back to full strength, if not beyond and then I had one follow up.
Sure. Let me give you the broad answer of our aspiration, which is we expect to grow sales and to increase our profitability over time now the down click from that is of course, we are in a transformation and we are investing against the portfolio. While also taking significant cost out of the.
Out of the business and.
And so I don't want you to take any one of the factors as far as investing and our Sigma relationship.
And as indicative.
Indicative of we have any intent and other than to grow sales and.
Grow our profitability over time at our Investor day in two weeks and so im going to ask and be patient with us at our Investor day in two weeks I will give you more visibility too.
Our points of view on fiscal 'twenty, two which is approaching rapidly as well as the longer term algorithm of about how we think all of these pieces come together.
Got it and then the follow up.
Aaron you mentioned, a couple of times and our debt pay down which I know over the past few quarters people are questioning what youre going to do with your stockpile of cash.
I'm just wondering how we should think about whether it is the goal or a timeframe in terms of debt pay down.
And what that implies for your cash usage I know you talked about talking about.
And of cash priorities and a couple of weeks, but just directionally speaking.
And what are your thoughts on the the timeframe and the goal for the debt and whether that has any change to how you used to prioritize the cashews share while as you look back over the last nine months, what you can see us significant debt paydown in Q1.
The Paydown in Q2, and indeed, we led with the fact that we have paid down debt and Q3 as well.
And as I look back over the crisis, we did exactly what we should have and the face of the unknown and increasing our balance sheet cash and expense.
And as we focus on the longer term on the overall profitable profile of the business the profitability profile of the business given the strong cash that we generate we have I'm not hiding anything here by saying, we have the opportunity to optimize our capital structure I'll give you the details of that during Investor day.
But you can take from what we've done a pretty good signal on where we're going.
Understood. Thank you.
The next question comes from line and for women with Credit Suisse.
Thank you.
Little bit of of followed the John question of 10% more local customers wallet share gains and we're seeing in current broad industry day.
Please go ahead on the restaurants. So can you help dimensionalize how much of the new customers and wallet share gains are offsetting the same store sales declines existing customers and then just overall what are you for all of our sector recovery. Thanks Shannon.
And.
Yes, there are and you're breaking up and the first half of your question a little bits of I'm going to try to answer what I think was the spirit of your question, but I'll and I'll start with the ending which is no change versus the local independents.
The chain and universities covered pretty for prolifically publicly and I think you all know that data certainly the fast food and <unk> space has been on fire and evening with the chicken Sandwich has been on fire. Our Sigma sector reflects the double digit increases to prior year from the sales perspective the.
The pleasant surprise, and our Q3, and then and it's accelerating and our Q4 is the strength of the local independent customer and.
And the fully reopened markets producing results that are above 2019 that exceeds our expectations that exceeds technomic prediction by about 18 months frankly, but there are still major geographies that are still closed.
And to be clear about that New York, Boston, and Chicago, and most of California US steel is still confronted with major restrictions our European business is still dealing with major restriction. So.
We're we're very optimistic about the health and strength of the local independent customers of our most profitable segment as you well know and when you combine just the general recovery curve of what independents are doing coupled with our 10% increase and the number of doors that we serve when and industry is down 10%. So we have of <unk>.
80% of Delta on a number of unique doors versus the industry's overall performance.
And as we see more markets opening up reducing restrictions.
We have a strong tailwind here in front of us.
Okay, great. Thank you Bill you can hear me better.
Youre willing to share specific to April I think you said that you have broad line down on all of our 5% global customers and Lasalle running positive sales together with the new customer wins can you Tim local case volumes are running about flat at this point.
Well I think we've shared the level of detail we can for purposes of this call one of the things we're going to talk about on Investor Day is how we think about the individual components of our customer base. When I would have you take away is.
Certainly with foodservice management still being slow hospitality and not having recovered the strength of where you can sort of the where you can see the strength and the portfolio is and the independents coming back and and and the change that have been.
Stronger over the course.
Alright, Thank you very much appreciate it.
Thank you Lauren.
Your next question is from Nicole Miller with Piper Sandler.
Yes, good morning, I wanted to ask first about labor and internal reflection of few wood.
And it's very positive to hear how you're helping your keen and then how they help the community on average and I'm curious if you could share of spectrum.
Meaning I'm sure there's areas of challenges and offsetting clearly areas of successes, so and I think about labor.
Clearly sales of just the crush.
And it out and the field and then we hear for example, and maybe any other end of the spectrum, it's hard to get somebody to drive the truck overnight or something like that.
And where does like the night shift to fill the truck before that that's true.
Polls out where does that fit and can you just kind of talked of the nuances of.
How all of this happens and where there's challenges and and I think you've clearly outlined the successes.
Thank you for you can fill and fill that in.
Critical. Thank you, it's Kevin we have three major functions on our fields of theirs the sales function.
Call them selectors and those are the folks that work on the warehouse and and drivers we're actually going to change the name of the driver piece to be more and more reflective of the work. We're trained to start calling them delivery partners because they actually partner with our sales team to activate sales at the local level, but for now for sales consultants selectors drivers.
Sales consultants were debt.
Debt teams, just killing it and out there right now as we talked about earlier, we will be in a position of actually adding the sales consultants and fiscal 2022 based on the investments we want to make on our team based selling model. We've said publicly and we'll talk about it more on may 20th we're going to add more specialists to be able to complement our existing broad line sales can.
<unk> warehouse selectors again, as I said little bit earlier, we pay a very fair wage for those jobs. Those are excellent jobs and we have a ton of hiring to do I mentioned and we're going on here over 6000 people and total for our spring season, how I would describe our warehouse electors as we're on track we manage it day to day week.
The week with hiring goals by site by location and we are green, meaning in the good position and green yellow red on our warehouse and select the hirings the more difficult job to fill at this point and time is our driver job and it's not because of weight and so as I said earlier, our wage for our driver roll us terrific hits.
Is about creating more awareness of those jobs. The overall macro impact on drivers is the age of the driver in this country is getting up there and people are retiring and theres too few people going into that line of work I would say on actually inspired by what United Airlines is done and they have the exact same problem with pilots and they've just purchased and are going to.
And source a pilot school, while I'm not announcing anything today on this call what I would submit to all of you is sysco is going to be very progressive and be the industry leader on creating a pipeline of drivers for our long term success, and we're not going to let us get and the way of our growth.
I think I would maybe half of that.
And if I could add to that just to go back to some of the core themes, which is look we have significant scale across the industry and we have capabilities, whether it's with our and our buildings with our selectors with the pipeline on the drivers with the sales teams for an attractive employer and so many ways for me.
Age of benefit perspective, we don't have the issues that many do and the industry. We have great retention rates on the employees that we have and.
And as it relates to cost to us we have the opportunity of already proven that we can bring and we are bringing our costs down so that on both we can improve the bottom line, but also we can invest where necessary and in Q2 and Q3 you heard US talk about the fact that we are investing and the recovery and investing against our team to be able to drive our successes and the enterprise going forward.
And if I can just sneak in a second and last question like more of an external risk reflection of day in the life of a restaurant that you deliver Q I am curious about steel fill rates and and the predictive nature of the time window and how thats changing so again on average its amazing. This is where we do have a little bit more.
And site when we look at restaurants, and obviously as mapping and correlating to what you've shared.
Some are better off and some are lagging naturally.
And I'm tempted and at this time and ask because it's probably wrong I'm tempted to think of suburban teen restaurant to get everything they need fill rate at the window, they want and maybe urban local restaurants down. So again can you just speak to the spectrum of of how it is and.
Good day, and the life of a restaurant deal with banks.
Well thanks for the question I'll just break it down into two parts one is the the.
On the fill rates as we call it outbound to our customers we're experiencing the supplier fill rates of challenges to sysco as are all distributors and we track. It by supplier. We are very very rigorous on our ability to improve those performance data and for those that can't improve we move volume from supplier to supplier.
B in order to ensure that we can ship to our customers and we're doing that aggressively right now we partner with our suppliers. We gave of joint business plan, we provide rolling forecasts that if they can't meet our demand we're going to find the supplier who can the strength of sysco is because of our size and our scale. We can do that work more effectively than anyone else in this space, which allows us.
The ship on time and and full to our customers. There are some specific unique products that are really challenging right now of chicken wings shortening to be specific just to provide two examples but we're doing an enormous amount of work to ensure that we can fill customers' orders as it relates to our on time delivery, meaning the truck arriving within the window that our customers want we're actually going to talk.
But exactly of that topic on May 20th Marie Robinson, our chief supply chain officer is doing a tremendous amount of work. We're excited about the progress that we're making to be more agile more flexible and more customer focused supply chain, we're bringing a mentality of customer first work our way back versus what's good for sysco and us fit them into <unk>.
<unk> designed model so more on that on May 20th and we're excited about talking with you about that as it relates to metro versus suburban yes, I don't think that niche and draw a bright line there to say on time rates or preferred windows are better suburban versus metro what I would say is something I actually talked about a year ago. When we put that project on pause because of COVID-19 and into our <unk>.
<unk> rating at <unk>.
Small restaurants, and and urban setting of really small back rooms, and they actually need more frequent delivery and we're going to talk to you about that on May 20.
Thank you for taking my questions.
Your final question comes from the line of John and <unk> with J P. Morgan.
Hi, great. Thanks for getting me and there again.
So I think Kevin in your prepared remarks you.
You made a comment about.
The independent restaurants, and local accounts that were actually outperforming changed and the markets that had reopened and 21 versus <unk> 19, I guess debt did.
Did I hear that correctly.
And then I'll go from there.
Yes, John I didn't mean to come across that way, what I said was local independent restaurants in fully reopened markets are performing better than local independent restaurants in 2019, Okay and thats why itself.
And by itself is a pretty powerful statement, yes, well okay. Yes.
Certainly and certainly I understand that and that and.
I didn't mean, the scrubbed the transcripts and forgive me for that Bob.
And then and in terms of the of the independent restaurants that you have that and it's obviously up 10%.
It is a huge number I mean, do you think theres something different.
And maybe I can anticipate ranch for a little bit of that makes them much stickier and 21, I mean, it used to be.
And the local accounts theyre not of contract. It's a street fight every day basically to maintain this business.
Is it your sense and are you seeing through your experience of being of some of your technology initiatives and what have you that are leading to a more predictably sticky consumer.
The restaurant consumer of that maybe you had.
And at the beginning of your tenure or for I guess more appropriately and before your tenure.
It's a great question and we're going to talk about precisely this topic on may 20th of what we're going to unveil at net Investor day is our strategy to increase retention increase the stickiness of existing customers that we win and also how we will prospect new customers on on an ongoing rate at the level that we currently are.
<unk> and comment on the independent local customer level for sure. It always has been and always will be but the tools that we're bringing to the industry related to being right on price having of promotional offer that's relevant and specific to that individual because we know of more about them than anyone else because of the amount of data that we have and to provide a merchandising and <unk>.
Getting the strategy that meets the needs of those each individual customers.
And we can do better on all of those things as a company and we are doing better and I respectfully and humbly submit will be the best and the industry of doing that and we look forward to talking to you more about another 20.
That's great and finally, the complete non sequitur.
Europe I don't think that there were many if any questions on this call about that.
Obviously, it's been a challenge accounting market overall, it's been a challenging market for sysco, even before that and in terms of integration and what have you.
Do you have and opportunity with your balance sheet and the fact that you already have people on assets on the ground.
To make a bigger bed and Europe, and if there arent necessarily consolidation opportunities that exist in the us for you to buy.
Distributors might there be some significant opportunities to really change the landscape of your.
Of your exposure in Europe, and the U K and basically.
The scale that otherwise you wouldn't be able to get at current prices.
And John Thanks for the question and in our prepared remarks for Europe. We spoke of the fact that it is recovering slower and it's not because of.
Health of restaurants, it's the restrictions I can go country by country by country of if we had time that essentially Europe's not yet and reopen we're looking at mid may of the earliest as to when the restrictions will begin easing with one exception. The UK opened up of outdoor dining and two weeks ago, and you need of reservations to get and outdoor dining appointment.
In the U K it's.
It is being so warmly received so mid may to late May us when most of the European countries that are going to begin the process of easing restrictions. So it's still a struggle and Europe, but we do anticipate of recovery there certainly pent up demand in Europe for for eating at restaurants, and we are confident actually that our ability to succeed and Europe is increasing not decreasing.
Aaron talked about one we are of very notable.
And when in the U K debt, we've signed during this pandemic that will pay dividend and the future of when that business begins to recover we can talk about that more in the future as it relates to M&A and we're not going to comment on any M&A activity unless there was activity to comment on I would say our European strategy is more fixed the things that were broken free.
We had some self inflicted wounds, we have used this prices to meaningfully and stabilize our performance in France, and I would describe France's we're ready now for the reopening of restaurants to be able to wind backlog of business and to take a significantly expanded product range and go out and start winning business and the U K our biggest opportunity.
<unk> is to win new independent local customers and we're going to talk with you about that on May 20th of our new International leader, Tim <unk>, who will go actually country by country, explaining our strategy to win in each country.
Great. Thanks, so much thank you.
This concludes today's conference you may now disconnect.
Okay.